As valuable as it is to America and the world, free trade as a policy is facing hard political times. Speaker Nancy Pelosi has recently tabled the Colombia Free Trade Agreement, even though it would clearly benefit US Workers. Senators Hillary Clinton and Barak Obama are loudly competing over who will do more to “renegotiate” the North American Free Trade Agreement.
Free trade is always under threat when voters feel uneasy about the economy, and unfortunately, many Americans have been encouraged by many politicians and media figures to think of the economy as weaker than it is, and to think of free trade as a “big business versus the little guy” issue. It is not. The truth is that job and export growth are actually driven by the “little guys” in small businesses who together, make up a huge sector in the American economy. American small businesses employ half of the private sector workforce, and account for almost 30 percent of our 2006 exports, or $263 billion.
Given the facts and the knowledge that their government is diligent in monitoring foreign compliance with free trade agreements, Americans will support free trade.
That is why the Air Force’s recent decision to award a $35 billion military contract to EADS, a European consortium that has received over $100 billion in illegal government subsidies, is such a terrible disappointment. These subsidies are so large and so transparently protectionist that the US Trade Representative has brought suit before the World Trade Organization (WTO) over the matter. EADS subsidiary Airbus has received an estimated $5-10 billion of illegal subsidies on its KC-30 tanker program alone. Its American competitor Boeing got no US subsidies for its KC-767 program.
In a Senate Finance Committee hearing in March, US Trade Representative Susan Schwab testified that she had briefed the Air Force about the pending US trade case against Airbus at the WTO, and made it clear to the Committee that her agency had no role in the Air Force’s decision to award the contract to Airbus instead of Boeing. According to Schwab, “this is a decision done solely by the Air Force."
The Pentagon’s decision to willfully ignore the US Trade Representative’s warnings about EADS’s massive, illegal subsidies is precisely the kind of cluelessness among the Washington political class that will turn otherwise sympathetic Americans against the free trade policies that have helped drive our modern economy.
If they were thinking like savvy businessmen and women, the Pentagon and the US Trade Representative could have worked together to leverage the tanker deal by telling EADS that if they wanted the tanker contract, they would have to pay back the illegal subsidies, and promise to stop taking them in the future. But instead, the Pentagon gave EADS a free pass, simply ignoring their blatant violation of international trade rules.
European governments have long subsidized EADS because they have wanted to establish and support a domestic European aerospace industry. While we may certainly understand why Europe would desire its own aerospace and defense industries, it is maddeningly difficult for Americans to understand, much less accept, why our own government would play along, disadvantaging American firms who are playing by the rules in order to support European firms who are not.
Free trade is good for American businesses, large and small. But for them to support free trade policies, voters need to be confident that at the very least, Washington will demand that competitors for US government contracts must obey the rules of free trade. That’s why the Pentagon’s decision to willfully ignore the US Trade Representative’s warning about EADS trade violations -- coming as it does in a political climate that is challenging the very future of free trade -- is such a monumental mistake.